(June 2006) So you think you’ve done a pretty good job of working through your client’s financial plan — their retirement is funded, their tax-exposure is optimized, their health is covered with a critical illness policy and when they eventually pass away, their heirs can look forward to a tax-efficient transfer of wealth. What could go wrong?

Well, that wealth may not be there at all, if you failed to include long-term care insurance.

Long-term care insurance often takes a back seat to more lucrative and easy-to-sell financial products, such as life insurance or critical illness insurance, according to Sean Long, individual health products specialist with Desjardins Financial Security. Long has spent 34 years in the insurance industry and was one of the early adopters of living benefits in Canada.

While death is inevitable and the likelihood of a critical illness is high, the odds of requiring long-term care at some point in one’s life places the importance of LTC insurance somewhere between life and CI.

LTC differs from critical illness insurance, in that CI typically pays a lump sum to the beneficiary to help them get through their recovery from the illness. Long-term care, as the name suggests, provides a stream of income to cover ongoing costs of nursing or personal care.

"It’s all about social and financial independence," says Long. "We know the government won’t look after us."

The amount of assistance for either in-home care or institutional care varies from province to province, with the government deciding what level of care the individual will receive. And the cost of home-care varies from community to community, based on availability. An LTC policy can offer the policyholder more flexibility in choosing the level of care that they feel they need.

With an LTC policy, the client — with your expert advice — can set the amount they expect they will need to cover any shortfall between government benefits and the level of care they wish to receive. Long says the average policy being sold today will pay about $80 a day in coverage, or $2,400 a month.

It seems many Canadians are either reluctant to buy LTC or else are unaware of the risks they face. Essentially, they are betting that they will never suffer from a debilitating condition, or that their savings will prove sufficient to cover the costs of care.

Given the fact that Canadians are living longer than ever before, the odds on this bet are becoming increasingly long.

Long recommends starting the LTC conversation by talking about the client’s parents. Baby-boomers may be only vaguely interested in LTC coverage for themselves, but with many seeing their own parents now requiring increased attention, they may be ready to buy a policy for their parents.

Long says the average wait time for long-term care facilities in Canada is a little over a year. How many people are able to cover the costs of nursing care for one year if a loved one suddenly required that care?

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    There are two different types of LTC benefit available: cost-recovery benefits and a straight cash benefit.

    The client will pay a lower premium on the cost-recovery benefit, but these policies require the client to submit their bills to the carrier for approval, and the policy will specify which costs are covered and to what extent. For example, if the client requires a wheelchair, the carrier may only cover the cost of the most basic model. Any upgrade costs will come out of the client’s pocket.

    Because LTC benefits are paid out at a time when the client is at their most vulnerable, submitting bills and awaiting repayment may cause undue stress. Long says that since the product is meant to provide security and independence, clients are best served by the unconstrained monthly cash payout, if they can afford the premium. Still, he points out that cost-recovery policies are far better than the alternative of paying all costs out of pocket.

    Long says that 98% of LTC claims last less than three years, yet 80% of people buying these policies are opting for lifetime benefits, incurring higher costs in doing so.

    The short average duration of LTC claims is largely attributable to client lifestyle. Most claimants are seniors, who are now living longer and more active lives. The improved health that comes from that activity has, in general, delayed their need for long-term care. When these clients do eventually require care, they are usually in their final years and pass away within three years of entering long-term care.

    Lifetime benefits can prove vital for younger clients, however, who are more likely to survive a catastrophic injury than an older client. At the same time, lifetime coverage will be less expensive for younger clients, as the carriers can count on many decades of premiums to offset the risk.

    Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com